PBS Frontline Exposes Ugly Truths About Wall Street

In the first part of a four-part investigation, PBS Frontline focuses on the business with enormous global reach and influence: banking. The topic “Money, Power and Wall Street” is certainly more important than anything being discussed in the presidential campaign. The excesses and aggressive risk-taking of the financial industrial complex dwarf all other influences on the economy. The banking madness was sickeningly exposed during the financial crisis and stock market crash over 3 years ago.

As the first episode states, the recession destroyed $11 trillion of American’s net worth. 8.5 million workers lost their jobs. “Wall Street got bailed out and Main Street didn’t,” is the refrain justifying the Occupy Wall Street protests.

The episode shows arrogant and unrepentant bankers (Lloyd Blankfein, Ken Lewis, John Mack, Jamie Dimon, etc.) justifying their insolent behavior and saying we have to get back to business as usual. The bailouts have allowed most of them to carry on as if little has happened. Some have referred to them as sociopaths in their quest for profits over everything else.

Frontline attempts to trace the origin of the downfall. A 1994 meeting of JP Morgan bankers (mostly 20 year-olds) in Boca Raton is examined. A problem these bankers focused on was banks inability to deal with their own credit risks. Their solution was something which later became known as a credit default swap (CDS). CDSs are a derivative that insures a loan against default. CDSs were actually believed to make the financial system safer, according to Gillian Tett, author of Fool’s Gold: The Inside Story of J.P. Morgan and How Wall St. Greed Corrupted Its Bold Dream and Created a Financial Catastrophe. However, these derivatives eventually allowed banks to disperse their risks (many which were severely misrepresented) around the world and skirt capital requirements.

This story has been rehashed ad nauseum over the past couple of years, but it’s an extremely important history lesson nonetheless. One the bankers would have us just as soon forget so they can get back to business as usual. Which amounts to taking on excessive risk. If their bets don’t work out the taxpayers will be left holding the bag while they walk away with millions in compensation.

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